Hemispheres Investment Management
Hemispheres Investment Management Global Equities
| Time Period | HIM Global Equities | MSCI Global Value Benchmark |
|---|---|---|
| 1-Year | 37.76% | 13.69% |
| 3-Year | 11.73% | 9.56% |
| 5-Year | 16.60% | 10.23% |
| 8-Year | 15.52% | 8.46% |
| From 1/31/2015 | 11.29% | 7.55% |
Navigating the World of Global Equities
Hemispheres Investment Management
Introduction to Equities
- Definition of Equities: Based upon a company’s financial statement, equity is defined as the value of the company’s assets less all indebtedness. The market value of a company’s equity ownership is based on daily trading in the stock market multiplied by the number of shares outstanding.
- Ownership Implications: Equities represent an ownership share in a specific company where each unit of common stock is of equal value. By owning the shares in the company, shareholders participate in both the operating gains and the losses of the company.
- Benefits of Equity Ownership – In addition to potentially earning a dividend on each common share owned by the investor, investors benefit from profitability. Increased profitability often results in a higher share price which represents a gain on investment. By investing in companies with sustainable earnings, shareholder wealth is compounded over the long term.
Global Equities Explained
- Definition of Global Equities: A global equities portfolio is composed of securities from both the United States and international stock markets. A Global Equities portfolio differs from an international equities portfolio that holds stocks from companies outside of the United States.
- Diversification through Global Equities: Countries that participate in international stock markets around the world have different political and monetary policies as well as different regulations that affect shareholder returns. For example, the countries of Greece and Argentina held Presidential elections last year where pro-market candidates won the respective elections. The political environment influences both a country’s economic and equity market outlook. According to Bloomberg, the favorable political outcome resulted in the MSCI Greece and MSCI Argentina indices returning roughly 48% and 67%, respectively, in U.S. dollars for fiscal year 2023. These returns compare favorably to the S&P 500 and other US only benchmark returns. Furthermore, Greece’s sovereign debt rating improved, benefitting equity and fixed income investors. Another example is China, following slow COVID economic recovery, the government adopted quantitative easing monetary policy, this policy compares to quantitative tightening in the US and other Western economies. While this metric alone ignores geopolitical risk, in general, quantitative easing is bullish for a country’s stock market. There are over 45 countries with investable stock markets. Not all countries have the same monetary and fiscal policies and those policies matter to foreign investors. Furthermore, there are over 10,000 listed market leading companies with market capitalization over $ 1 billion to invest in globally versus 2,000+ in the US alone, providing higher diversification potential and enhanced returns.
Role of Equities in Investment
- Long-Term Investment Potential: Since December 31, 1987 to December 31, 2023, the S&P 500 Index, the MSCI All World Country Index (ACWI) and MSCI Emerging Market Index (EM) have recorded annualized compounded returns, including the reinvestment of dividends, of:
| S&P 500 | MSCI All Country World Index | MSCI Emerging Market* | |
|---|---|---|---|
| *12/31/1987 – 12/31/2023 | *10.91% | 7.65% | 8.81% |
Over the last 36 years, the S&P 500 outperformed both the MSCI ACWI and EM indices.
- Correlation: Although the S&P 500 earned the highest returns, the low correlation value of emerging market highlights the opportunities to take advantage of the volatility in equity markets to purchase attractively valued securities in globally diversified investment portfolios (please refer to the correlation matrix below for statistics from 1988 to 2023).
| S&P 500 | MSCI ACWI | MSCI EM | Investment Grade Bonds | |
|---|---|---|---|---|
| S&P 500 | 1.0 | 0.90 | 0.60 | 0.05 |
| MSCI ACWI | 0.90 | 1.0 | 0.76 | 0.06 |
| MSCI EM | 0.60 | 0.76 | 1.0 | 0.16 |
| Investment Grade Bonds | 0.05 | 0.06 | 0.16 | 1.0 |
Statistically, a correlation value less than 0.7 highlights that the relative movements between the S&P 500 and MSCI EM are not highly correlated and thus provide investors with opportunities to buy or sell into international stock markets in which prices have moved in a differing direction from the U.S. For example, in February of 2023, the Vietnam stock market traded down due to concerns about inflation and supply chain pressures related to the Ukraine-Russia war. This represented a strong buying opportunity for international/global investors. This international stock market is in one of the fastest growing economies in the world and is currently priced at a 35% to 40% discount, on a price-earnings basis, to the S&P 500. Following the nadir in February 2023, the Ho Chi Mihn Stock Index rallied about 22% versus 12% for the S&P 500 over the next six months (as previously mentioned, the Vietnam stock market is still priced at big discount to the U.S. stock market!).
- Risk/Reward: As a global equities value investor, Hemispheres focuses its research efforts searching for undervalued companies. The more undervalued the company, the higher the upside for investors when an undervalued company appreciates and reaches its fair-market-value price. With over 45 markets to choose from and over 10,000 companies with a market capitalization in excess of $1 billion, a plethora of securities provides global investors with substantial opportunities in domestic and internation stock markets. Hemispheres reduces investor risk by buying undervalued stocks from the standpoint that fully valued or overvalued stocks are riskier considering that their return is vulnerable to the movement of stock market indices or a decline to their fair-market-value.
- Diversification: As investment managers, one of our investment goals is to protect against the deleterious effects of inflation. Owning stocks provides just that and more. Using historical data from the previous section, the S&P 500 Index realized an annual compounded return of 10.91% over the last 35 years. The inflation rate averaged just over 2.75% over that same period. Thus, stocks amply outperformed inflation. For investors with ownership of both stocks and bonds, both investment asset classes realized returns superior to inflation. Investment grade bonds, represented by the Bloomberg Aggregate Bond Index, returned 5.44% from 1988 to 2023. Fixed income securities bested inflation by over 2.5%/yr., although less than stocks. Stocks are expected to realize higher returns than bonds, however equities are more volatile than fixed income securities. For long-term investors, the reward for owning stocks is that they materially outperform, on a total return comparison, inflation, and bonds.
Issuance of Global Equities by Companies
- Raising Capital Internationally: There are multiple ways that firms raise capital both domestically and internationally and the methods are similar worldwide. Companies can raise capital privately or publicly. Publicly raising capital requires the firm to meet more stringent regulatory and reporting requirements within the jurisdiction that the securities are being marketed. Most commonly, just like in the United States, firms employ investment bankers to underwrite, issue and market the capital offering to market participants.
- Types of Public Equity Offerings: When a private entity determines that it would be cost effective and provide greater access to capital, it may decide to issue a public equity offering. This first public offering of common stock is known as the Initial Public Offering (IPO). The investment bankers who have been employed to take the firm public evaluate comparable entity stock prices to determine the initial offering price. Secondary offerings can include subsequent issuances of shares that were held, but not previously distributed by the company, alternatively the company may authorize additional shares or raise additional capital by issuing a rights offering.
- Regulations and Exchanges: In the United States, companies are regulated by state and federal regulators. Depending upon the sector that the firm operates in, there are regulatory bodies familiar with a firm’s operations, safety record and procedures, etc. As an example, energy companies are regulated by the Department of Energy. The Federal Regulator concerned with financial reporting, stock issuances and trading is the Securities and Exchange Commission. The Stock Exchanges themselves further monitor the companies whose securities are listed there. The largest exchanges in the United States are the New York Stock Exchange and the Nasdaq.
Regulation and Exchanges Internationally:
- There are over 45 stock markets that are included in the MSCI All Country World Index (23 Developed Markets and 24 Emerging Market countries). All these markets have regulatory oversight of their listed companies. Hemispheres owns market leading or high-quality companies, of which many adhere to international accounting standards; some companies even dually report their financial results using their domestic market accounting standards and U.S accounting standards (U.S. Generally Accepting Accounting Standards [GAAP]. Additionally, the world’s regulators often work together to coordinate reporting standards.
- Per data from MSCI which tracks 85% of the world’s listed companies, the aggregated value of MSCI All Country World Index is almost $68 trillion, as of the end of January 2024. The largest country weightings of the ACWI Index are:
| Country Weighting | Value in U.S. $ Trillion | |
|---|---|---|
| United States | 63.2% | $42.7 |
| Japan | 5.6% | $3.8 |
| United Kingdom | 3.5% | $2.4 |
| France | 2.9% | $1.9 |
| Canada | 2.8% | $1.9 |
| Other Countries | 22.0% | $14.9 |
The U.S. stock markets weighting are huge compared to the rest of the world. The top 10 constituents of the ACWI Index are all U.S. listed companies. With so much of global stock market capitalization concentrated in the U.S., Hemispheres tends to have at least 40% of its global equity portfolios in U.S. incorporated companies. The major global stock exchanges include London, Amsterdam/Euronet, Frankfurt, Warsaw, Tokyo, and Hong Kong.
Contact Us Now
We recognize that individual and institutional investors alike may be new to investing in Global Equities. There are complexities and nuances associated with investing in various markets that require expert guidance. Hemispheres Investment Management’s team of seasoned professionals have a 35-year track record of successfully managing investment strategies.
Please contact Hemispheres Investment Management for a free consultation. We offer personalized guidance and strategies that can help you or your business leverage global equities to meet your financial objectives. Book a Meeting
Michael Hart, CFA
CEO and Director of International Research
Michael Hart has over 30 years of capital market experience. From 2007 to 2013, he worked as a Managing Director at Tradewinds Global Investors, where he was a global equity and emerging market equity portfolio manager and a global securities analyst. Prior to Tradewinds, Michael founded and operated Hemisphere Asset Management from 2000 to 2007; the Firm managed global equity, fixed income, and balanced accounts for individuals and institutions. From 1989 to 2000, he helped manage the investment portfolios of the Farmers Insurance Group of Companies as a Senior Portfolio Manager.
Rebecca Holden, CFA
Director of Domestic Research
Rebecca Holden has over 30 years of capital market experience. From 2003 to 2010, Rebecca was Portfolio Manager and Principal at Archer Capital Management in Los Angeles, California, managing domestic equity portfolios for individual clients. Prior to working at Archer, Rebecca was an equity analyst employed by Lehman Brothers in New York City following electric and gas utilities as well as energy companies. Before relocating to NYC, Rebecca was employed as an Intermediate Portfolio Manager for the Farmers Insurance Group of Companies as one of four corporate portfolio managers.
Rebecca was employed with prominent west coast financial institutions prior to employment on the Farmers accounts. Rebecca held positions as a credit analyst, banker structuring both private and publicly held bond issuances and later manager of one of the largest groups at the bank. In addition to the professional designations held, Rebecca has an MBA from Brigham Young University with a double emphasis in Quantitative Analysis and Finance (Investments).
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